In Israel, Startups Race Toward Exit

Israeli startups beat their counterparts in Europe when it comes to speed at which they get acquired, according to data by Dow Jones VentureSource.

VentureSource measured the median time from a first round of funding until acquisition for startups in Europe and Israel. The data didn’t include startups that listed shares in initial public offering.

The analysis showed that at the close of the third quarter of 2014, the eight Israeli venture-backed companies acquired in the period took 3.95 years from first round of funding to acquisition. The median amount of equity they raised was $5.5 million. The median acquisition amount was $34.10 million—a 6.2 times return on investment.

Germany came a close second place in terms of speed of acquisition, but there were many more German companies acquired. Twenty nine German startups were acquired in 2014, with a median 3.97 years to exit. The median amount raised was $5.93 million, with the median acquisition amount $15.07 million—a 2.54 times return on investment.

In the U.K., 18 firms took a median 6.41 years to exit. France had 20 startups acquired with a median age of 6.66 years. In Sweden, nine companies were bought, with a median age of 9.03 years.

In Israel, the pace is accelerating. The lifespan of a tech start up before being gobbled up has gone from 8.59 years in 2009, to 5.5 years in 2013., to the current 3.95, by the end of the third quarter of 2014.

The pace has been controversial in Israel, where critics have said entrepreneurs are too quick to sell out—often to foreigners–opting not to build their business to its potential. But some Israeli tech observers say its part of the Israel start up culture—to quickly move from idea to idea.

“For Israeli entrepreneurs, selling the company is just another step on the way to their dreams. It’s also something that creates value for the local eco-system,” says Yair Snir, a director of M&A and business development at Microsoft.

Elad Kushnir, vice president of business development at Israeli social casino gaming company Playtika, says early exits are part of the game for Israeli entrepreneurs. “If you’re offered a game-changing amount for your company, you take it. It’s part of the ‘who knows what tomorrow brings’ culture here,” Mr. Kushnir said. In 2011, Playtika, then only a ten-month old company, was bought by U.S. casino giant Caesars Entertainment Corp, one of the fastest Israeli exits on record.

In France, the opposite is true. While the French tech ecosystem is gaining momentum, startups there are taking increasingly longer to exit, going from 4.72 years in 2009, to 6.55 years by the end of the third quarter in 2014. The median amount raised by 20 startups was $7.30 million, with the median acquisition amount $28.33 million—a 3.88 return on investment.

French officials acknowledge that finding good exits for their entrepreneurs remains a challenge—particularly when many end up moving to the U.S. as they chase bigger rounds of funding. At an event last week to promote French startups ahead of the Consumer Electronics Show in Las Vegas, French Economy Minister Emmanuel Macron said that he wants to encourage more big French companies to buy French startups, rather than leaving them to be bought by U.S. companies.

“Entrepreneur is a French word that was stolen from us,” Mr. Macron said. “We need to regain the spirit of conquest.”